Q11 Matthew Hancock: The whole Committee recognises and supports the work that you have done moving in this direction. However, when we have talked about this in the past, the Department has acknowledged a culture of over-optimism in cost. Do you think that that has gone away?
Ursula Brennan: You might want to ask Bernard Gray about that, because the people who do the estimating work in DE&S-
Q12 Matthew Hancock: That is a very good idea, because in the past you have been at the realistic end of the spectrum of witnesses from the Ministry of Defence.
Bernard Gray: Some people's realists are other people's pessimists.
Q13 Matthew Hancock: Do you think that over-optimism has gone away?
Bernard Gray: It is not a black and white distinction when you are talking about a large group of people behaving in particular ways. Moving people's attitudes is a bit like a super-tanker: it is not that one day they are like this, and another day they are like that. We have certainly made progress on changing people's attitudes to it. One of the events that is part of that process is that Admiral Lambert, the Finance Director and myself conducted an exercise six months ago to go back and look at the programme with the Cost Assurance and Analysis Service, which we have beefed up over the course of the last two or three years to challenge all the teams about the sets of assumptions they are making. We have made a number of adjustments, which have been publicised, to the tune of about £5.5 billion additional into the programme.
That is as a result of not a mechanical exercise, but saying, "History would say that it is going to cost X plus 20%, you are saying it is going to cost X, let's have a dialogue about that." That is part of a process of shifting people's attitudes. You have to keep at that, with the right incentives in place, over a number of years, to get fundamentally changed behaviours.
Q14 Matthew Hancock: Are you going to keep at that?
Ursula Brennan: I can understand that the Committee is interested in evidence, not promises, but there are a number of things we have put in place that will help us keep our feet to the fire. One is the bringing in of Bernard Gray, who was critical of our organisation and has now come in to help us sort it out. One is that the previous Secretary of State set up his own personal review of the major projects so that people had to come up and say why they were going off course. There is a set of things we have done about the approvals process, and the scrutiny around that. Our present Secretary of State has sent some very clear signals to people. There is a whole set of things that are helping us go in the right direction. Then we have the NAO who are going to run the rule over it.
Q15 Matthew Hancock: I approve of what the previous Secretary of State has done, I am not surprised by your comments about the new Secretary of State, and I certainly approve of you having brought Mr Gray in, because of his well-known realism. This cannot be dependent upon three individual people; it is about changing the process and culture of a Department. It sounds like that is moving in the right direction, but not yet a success.
Bernard Gray: Turning the mindsets of organisations is the work of years, not days, but it is a leadership issue. You have to demonstrate leadership in your behaviours, in what you are demanding of people, in the kind of ways that you measure, promote, reward that orient people in one direction rather than another. People have to believe that you are for real about that, so your actions have to match up with your words. It is a matter of time, but it is going in the right direction.
Q16 Fiona Mactaggart: Can I ask a question about leadership, in the Department, between people who are in the Services and people who are not? Is it possible for Civil Servants, particularly from outside, like you Bernard, to provide that kind of leadership?
Bernard Gray: You would have to ask the people who work for me. We have a Board inside of DE&S, my organisation, and we have been working forward in detail on a reform package for DE&S as a Board, with a considerable amount of unity, over the course of the last six or eight months. I would claim-you can talk to other people-that we had a significantly greater degree of unity and purpose aligned around significant change as a result of that. I personally do not have any problem getting along with the Services, nor they me, I think.
Q17 Nick Smith: According to our briefing, for the third successive year central planning decisions taken by the Department to delay spending have cost £124 million, and enhanced equipment capabilities cost an extra £113 million. That is a big impact. What are you doing about delaying spending, introducing enhanced capabilities and boosting costs there?
Ursula Brennan: Those are three distinct things. Deferred spending, where we consciously defer expenditure for affordability reasons, is one of the things we are trying to get out of. It is the reason we have taken some difficult decisions to cancel things, so that we get the programme down to size and do not have to defer things. That exact path, when I said we are "broadly in balance", has been about reducing the size of the programmes so we do not have to defer things for affordability reasons.
Q18 Nick Smith: Are you still deferring spending?
Ursula Brennan: Until we complete this process, we will have to take a set of decisions where we will balance value for money and affordability. I cannot yet guarantee that we are out of the woods on that, but when we get the programme in balance then we will not need to defer expenditure for affordability reasons. Sometimes expenditure slips to the right for other reasons, for good reasons, but we are on target, on path, to stop it happening for that reason-that we just do not have the cash. You talked about capability improvements. If we have a capability improvement, it is because we said we need some extra capability and are prepared to pay for it. I would not say we would want to stop choosing to spend more on improvements; whether it is value for money is important, but it is a conscious choice to say we needed that capability.
Q19 Chair: Can I take you to specifics now? You said you were asking the NAO in. I gather that you asked them 18 months ago, and they have not heard from you since. When can they come in and audit the affordability?
Ursula Brennan: That is not quite right. We are in dialogue with them.
Q20 Chair: Prior to this, they told me that 18 months ago it was suggested that they could come and audit the affordability of the programme; they have not yet been invited to do that.
Ursula Brennan: It is absolutely true that we do not have a firm date. We are in dialogue with NAO.